The Wells Fargo (WFC) board members who were tasked with guarding the bank’s reputation and making sure, among other things, that the bank’s aggressive cross-selling goals didn’t lead to mistreatment of customers, met just three times last year, the minimum allowed by board rules.
It also met the minimum number of times the year before, and the year before that, and the year before that.
A review of board records in Wells Fargo’s annual proxy filings of the past few years suggests that, even as scrutiny of Wells Fargo’s consumer practices was ramping up outside the bank—including a high profile article in the Los Angeles Times detailing the problems with the bank’s cross-selling strategy, as well as the launch of investigations by both the Los Angeles City Attorney’s office and the Consumer Financial Protection Bureau—officials at the highest levels of the company, who were most responsible, did little—that is, the absolute minimum—to address the bank’s growing problem.
None of that, though, or the aftermath, appears to have curtailed the payday of the board members involved. Judith Runstad, the board member who headed the corporate responsibility committee, which, according to Wells Fargo’s proxy had the job of monitoring “customer service and complaint matters,” was paid $384,027 in cash and stock in 2015.
Runstad, 71, retired from Wells Fargo’s board earlier this year. When she did, Runstad exited with more than $7.2 million in stock and options. Wells Fargo declined to comment, as it has in other situations, on whether it would seek to recover any of Runstad’s pay.
“That was a big miss,” says Mike Mayo, an analyst at CLSA who follows Wells Fargo, and who’s often been a critic of the big banks.
Mayo on Monday called for the resignation of Federico Peña, who is the current head of the board’s corporate responsibility committee. “This is not the way boards are supposed to work,” he said.
It is now clear that many of Wells Fargo’s customers were not treated well. Earlier this month, Wells Fargo paid a $185 million fine, including $100 million from the CFPB—the largest fine that agency has ever imposed—for creating millions of fake accounts in customers’ names without their permission. The bank has fired 5,300 employees for the phony accounts. On Monday, it was reported that the bank’s chief risk officer of its retail division, Claudia Russ Anderson, went on leave in June. And the bank’s top consumer banking executive, Carrie Tolstedt, exited the bank in July, with $124.6 million in stock and options.
The Justice Department is also reportedly investigating the bank. And on Tuesday, Wells Fargo’s CEO John Stumpf is expected to testify in front of the Senate Banking Committee on the matter. In his prepared testimony, which was leaked to The New York Times on Monday evening, Stumpf is expected to tell the banking committee that he is “deeply sorry,” but that the phony accounts were not part of some scheme orchestrated by the bank. to defraud customers.
Oscar Suris, Wells Fargo’s top spokesperson, says Runstad’s departure “was planned and known a year in advance. It had nothing to do with the consent agreement or the recent settlement with Los Angeles.” Suris also said that the departures of Anderson and Tolstedt were not related to the recent settlements.
A number of checks that were supposed to balance out any customer abuse at Wells Fargo clearly failed. Officials at the CFPB have said that one of the reasons the Wells Fargo’s fine was as large as it was is that the regulator found that either the bank knew about the bad behavior and ignored it, or took too long to address it.
A recent article in The New York Times found that Wells Fargo supervisors were warning employees as late as mid-2014 to stop opening fake accounts in the names of unsuspecting clients, nearly three years after the bank had supposedly first identified the abusive behavior. Nonetheless, the Times found, fake accounts kept getting opened. What’s more, prior to the settlement, Wells Fargo’s accountants never forced the bank to disclose the extent of its problems, and the potential for a large legal payout, to shareholders.
But certainly, some of the blame rests on Wells Fargo’s board of directors as well.
The bank’s board formed the corporate responsibility committee in 2011. It was first headed by Lloyd Dean, another Wells Fargo board member, who now heads the committee that oversees compensation. Dean was paid $346,027 in cash and stock last year.
Runstad, a former real estate lawyer who has been on a number of boards, including Wells Fargo’s since 1998, took over the committee in 2012. In 2013, Forbes profiled Runstad in an article on how to make a six-figure salary in retirement. Runstad was paid $98,000 in cash and stock. Peña, who took over from Runstad earlier this year, got paid $320,027 last year.
In the four years Runstad chaired the corporate responsibility committee, it met just 12 times, the fewest number of meetings of any of the board’s subcommittees. Over the same time period, the board’s audit committee met 42 times, including 14 times in 2015 alone.
It’s likely the corporate responsibility committee was the only committee on the board charged with looking into the matter of the phony accounts, though the audit committee also oversees the bank’s legal matters. Runstad was also a member of the board’s risk committee, which met seven times in 2015.